Banker Breakups May Help Spur U.K. Divorce Law Changes

Wealthy Britons going through a divorce may benefit from a review of U.K. court standards that some lawyers argue promote unfairly generous rulings in favor of less well-off spouses.

An inquiry announced last week by the Law Commission, an advisory body sponsored by the Ministry of Justice, is the first step toward reversing a trend that’s made Britain the “divorce capital of the world,” said Louise Spitz, an attorney with Manches LLP in London. The commission may submit a draft statute to Parliament next year.

A lack of judicial standards and the arbitrary nature of divorce cases stem from a 12-year-old court ruling, lawyers said. The commission’s review also comes six months after an appeals court ruling in the high-profile case of JPMorgan Chase & Co. (JPM) equity analyst Peter Lawrence. He won a decision cutting by 9 percent to 1.37 million pounds ($2.22 million) a payout to his civil partner of 11 years, former “Priscilla Queen of the Desert” star Donald Gallagher.

“English courts have the reputation of being very generous to the divorcing partner with less money, often with capital assets being divided equally and the wealthier spouse having to pay long-term maintenance,” Spitz said. “The system is very unpredictable and varies from one court to another.”

Divorce judges may have an easier time resolving cases if the law included a clear definition of “needs” in relation to a spouse’s living requirements, the commission said in a Sept. 11 statement.

Review Triggered

The review of U.K. divorce law was triggered in part by the case of German heiress Katrin Radmacher and ex-JPMorgan investment banker Nicolas Granatino, lawyers said. In October 2010, the U.K. Supreme Court ruled for the first time that a U.S.-style pre-nuptial agreement on asset-division, reached before marriage, should be decisive.

In London, it’s common for big divorce payouts to go to partners with less money even if that spouse is relatively young, the relationship was brief and there aren’t children, Gallagher’s lawyer, Katie O’Callaghan, said.

“People actively try to get divorced in this country because if they are the financially weak party, they can expect a bigger payment,” said O’Callaghan, who declined to comment on how the review might affect her client’s case, which may still be appealed. Sarah Higgins, Lawrence’s lawyer with Charles Russell LLP in London, didn’t return a call seeking comment.

‘Welcome News’

Payouts to spouses in high-value divorces became more “generous” after a 2000 court case set the standard for high levels of maintenance, often for a lifetime, said Suzanne Todd, a lawyer with Withers LLP in London.

A new law “would be very welcome news to many working divorcees, who see the effect of the current regime as a millstone which provides a meal ticket for life” to the less- wealthy spouse, Todd said. The review suggests the U.K. is heading toward a system using a formula to help calculate spousal maintenance, the lawyer said.

The commission started a probe of U.K. pre-nuptial accords in January 2011, three months after the Radmacher judgment. The announcement Sept. 11 expanded the study to review support payments and division of non-marital assets -- assets belonging to one spouse, often from before a marriage. Such assets are generally not the subject of division in a divorce.

‘Difficult Questions’

“These are technically difficult questions; they are also very emotional questions,” Elizabeth Cooke, a professor at the University of Reading who oversees the commission’s review, said in the statement last week. “They impact upon people at a difficult time in their lives.”

Potential changes would apply to England and Wales, which share their family laws. Scotland and Northern Ireland have their own jurisdictions and rules as part of their devolved governments.

In the case of Lawrence, he was allowed to keep a London apartment he purchased before the relationship, even though the property increased in value from 650,000 pounds when the couple moved in together in 1997, to 2.4 million pounds.

Gallagher, the actor, got the pair’s second home, valued at almost 900,000 pounds, and a 200,000-pound share of Lawrence’s pension.

Judges don’t know what they’re supposed to achieve in terms of needs and fairness, and wealthy people in particular don’t have enough clarity on the status of assets acquired before marriage and other non-marital property, according to the commission.

Consultation Period

While the commission described concerns associated with a lack of rules and standards, it also plans to analyze the benefits of a system that allows judges to use discretion, depending on what experts in the field tell them during a consultation period.

Attorney Richard Collins said the current system may be better for wealthy couples who part ways, because it gives “a bespoke answer to every individual case.”

“It can be expensive and it can take time, but it’s all about fairness,” said Collins, also with Charles Russell in London, in a phone interview. “Just to apply a blanket approach to every family dispute is not fair or reasonable.”

In the 2010 U.K. Supreme Court case, Granatino, a French- born former JPMorgan banker, sought a bigger payout from his German heiress wife, arguing their pre-nuptial agreement shouldn’t be enforced because she withheld the full extent of her wealth, and he didn’t have proper legal advice. The court disagreed in a ruling that Granatino said at the time amounted to “judicial legislation.”